After months of commercial operations, the Ethio-Djibouti Railways is seen as reducing freighters’ piece of the pie. Although it is not running at full capacity, it is seen as a game changer in the transportation sector of a landlocked nation, reports, YARED TSEGAYE, FORTUNE STAFF WRITER.
It has now been months since the Ethio-Djibouti Railway Line, covering 756Km in length and extending from Lebu, in Addis Abeba to the Port of Djibouti began commercial operations. It is expected to address some of the logistical hurdles the land-locked nation currently faces.
Gizeshwork Tessema, CEO of Gize Plc, a logistics that shipping company, established in 1992 and employs up to 200 people, sees it differently. Ten freight trucks operated by the renowned businesswoman’s company have seen no business as a result of the “unfair competition” the railway presents.
“We are losing out on back-haul trips,” she despondently told Fortune.
Over the past few years, Ethiopia has seen growth in foreign direct investment (FDI) from countries such as China, Turkey and India. To build upon this success, the government has been investing in infrastructure to attract more and doing business in the country easier.
One of these long-awaited projects is the Ethio-Djibouti Railway Line, which became operational in late January 2018. Built for 4.2 billion dollars with funds from Export-Import (EX-IM) Bank of China, it has transported 30,000 passengers and 11,000 containers in four months. This has not been good news to freight service providers such as Gizeshwork.
“It reduces our piece of the already moderate pie,” she says.
The devaluation of the Birr by 15pc against a basket of major currencies last October and the foreign currency shortage have both reduced the amount of business the freighters have been getting from importers.
On the other side of the argument, but sharing the same market, is Elsabet Getahun, manager of the Pacific Global Plc, established in 1993 and employing 150 people since 2016. Pacific has 22 freight trucks with a holding capacity of 40ft each.
“It is a game changer in the logistics sector of a landlocked nation,” says Elsabet, who is also the deputy chairperson of the Ethiopian Freight Forwarders & Shipping Agents Association which has over 50 active members, says.
However, even she admits that once non-container or cargo transport begins along the railway, it could be concerning. The railway line may make the under 10,000 freight and logistics trucks in the country, most of them in need of repairs, obsolete according to her.
There are currently over 5,500 freight trucks in the country working along the route.
While costs are fixed along the railway line, the price of using the freight trucks increases with volume. The former could also carry as many as 106 containers in a single trip, while the latter can only take up to 40tn.
A private freight forwarder and logistics company may charge as high as 110 Br for every kilometre of a tonne for a bulk shipment. This means that the current cost of transporting a container is 35,000 Br for the railway service, while freight companies charge 45,000 Br to 60,000 Br for the same shipment.
“The railway has not started working at full capacity yet; we are not the reason for their lack of business,” explains a source from the Ethio-Djibouti Railway (EDR) S.C, a company established to oversee the operations of the railway. “Importers, on the other hand, are attracted to the service we provide and want to make deals with us, such as the one we are finishing up with the Ministry of Agriculture & Livestock for the transportation of wheat in a few months.”
Freight transporters have thus made adjustments to their costs up to 90 Br a quintal and over the last week up to 130 Br.
“Getting loads was easy before January as every truck would transport four times a month. Now they dwell for three and four months without business,” Adera Meles, 32, a vessel agent, who works around Qality says.
Until 2017, a truck was able to serve 2.5 trips a month, according to a national logistics survey, according to a commissioned study by the United Nations Development Programme (UNDP) policy advisory unit.
High and low-bed trucks are now like exhibits at the Modjo Dry Port, one of the widely used intermediate logistic destinations for cargo, according to vessel agents in the industry.
Zerihun Haile, a sales manager at MACCFA Freight Logistics Plc, a firm established in 1994, still does not see the coming of the Ethio-Djibouti rail to have such a great impact since it has not yet entered the market with its full capacity.
“The train will be costlier if we consider the additional charges incurred before reaching the main port, as the rail line is not finished,” Zerihun, whose company has 15 trucks, mostly with 40ft long, told Fortune.
And companies such as Metta Abo Breweries and East Africa are sticking with the private freighters. Cattles are also being transported by Sino and Renault trucks, as well as machinery.
The train though is now transporting raw materials for the manufacturers, perishable food items, and fertiliser cargos.
“The people involved in the freight and logistics service are supported by the government given the importance of the service they provide,” explains Temesgen Yihune, director of logistics coordination and monitoring at the Ethiopian Maritime Affairs Authority.
Working with outdated trucks, sluggish monitoring of brokers and ill-understanding of the country’s macroeconomic condition is what is putting the freighters behind, according to Temesgen.
“Nonetheless, 80pc of the country’s import is being transported by them,” Temesgen adds.
Importers are two hearts about the railway line, even if it presents a less costly alternative. This is because of the additional transit fee transporting by the railway line incurs, as it cannot reach the main port, and obliges them to pay an extra 100 dollars to 150 dollars to reach the final destination.
“For the last two months we have been in the process of making a deal with Djibouti’s government for the cost to be eased,” Temesgen says.
A rail line over eight kilometres from Negad to the main port is currently being constructed to eliminate the transit cost and will be finalised by next December.
Thus, the shortage it comes to inland logistics will likely continue. Considering this, Egana Buche, Uni-modal operation department director at the Ethiopian Shipping & Logistics Services Enterprise believes it should be a boom time form freighters.
“We are practically begging them to transport the half a million tons of fertilisers and food currently on the sea,” he says.
The World Food Program currently has about 20,000tn of fertiliser and food items waiting to be transported to Ethiopia. From May 20 to 27, a little over 1,630 trucks have transported containers owned by the government.
Before 2010, Ethiopia’s import cargo stood at 8.5 million tonnes, and export was at 600,000tn annually. Currently, the imported freight has hit 13.5 million tonnes while over 1.8 million tonnes worth of goods are being exported annually.
Mamo Mihretu, a program leader at the Ethiopia Trade Logistic Project at the World Bank, believes for such a competitive scenario to take place was inevitable. More frequency along the routes and higher carrying capacity is an advantage along with lower cost of ferrying for the economy. But flexibility will only be evident with the private freighters.
“A mix of the two means of transporting is a lucrative medicine for the headaches of the logistics industry,” Mamo told Fortune, “but there should be an operational integration between the two modes.”
He also points out that tracking systems must be implemented by freight and logistics companies so that they efficiently utilise their trucks.
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